The end of farm subsidies - The New Zealand Experience

From Duane Lester:

What would happen then? The common belief is it would be the death of the American farmer. That scare tactic insures the farm bill will return and be approved and signed. But is that really what would happen? Do you honestly believe that the fields in Kansas, Missouri, Nebraska and Iowa would be fallow, year after year? Neither do I.

Some farms might go under. That is true. The farms that cannot produce a crop for a profit will fold, but they will be bought up by other farmers and they will produce a crop and a profit. There are plenty of crops produced each year without the help of subsidies. The farms would not lie empty. They would just be run differently. Businesses need to stand or fall on their own. Government intervention, as usual, has done more harm than good.

Going Green Isn’t Always Good

A negative effect of farm subsidies that I have not touched on yet is the damage it has done to the environment. One great example is the huge dead zone in the Gulf of Mexico. In 2006, the area overgrown with algae covered 6,662 square miles. This is one case of going green that isn’t anything to be happy about. That is a lot of ocean without enough oxygen to support life. And in 2007, it was expected to be even bigger. What does this have to do with farm subsidies? Farmers get paid for the amount of crop produced, so that encourages them to plant as much land as they can, even right up against rivers. I have witnessed farmers clearing timber right next to a river so they could get a few more acres. Run-off from pesticides and fertilizers get into the rivers and end up in the Gulf. Reason Magazine notes:

A study by the Environmental Protection Agency found that 72 percent of U.S. rivers and 56 percent of lakes it surveyed suffer from agriculture-related pollution.

Here is that study.

One would be lead to believe that without subsidies, farmers would be forced to plant less in order to keep the market from bottoming out. This would also lower the price of farmland. As we noted before, the price of farmland is estimated to be 30% higher due to subsidies. This land could then return to timber along the rivers, limiting the exposure to chemical fertilizers and pesticides.

Another environmental problem created by farm subsidies is the wasteful use of water. Were you aware that we are paying taxes to grow cotton in the Arizona desert? In 2003, we paid $103,125,972 in cotton subsidies to Arizona “farmers.” I put farmers in quotes because the top three recipients of the subsidies were Indian tribes that operate very successful casinos. They are not your struggling family farmer.

And the farmers in Arizona use over 60% of the state’s water, subsidized of course:

Cotton farmers, for example, receive massive government subsidies for growing their crops, and water their plants with subsidized artificially low-priced water. If the distortive government subsidies went away, and water prices were allowed to float up to where supply met demand (and we were not draining down aquifers and Lake Powell) then my guess is that a lot of desert agriculture would disappear.

My guess is he’s right. It’s the market at work and it corrects itself by the invisible hand. Another benefit of ending subsidies is an end to wasteful water uses.

Lower Prices to American Consumers

Why are our sodas sweetened with corn syrup? Target has a section in its stores that feature “premium sodas.” They are a little higher in price, but they use…real sugar. Americans pay over 200% more for sugar than the rest of the world. This has been going on since the War of 1812. And, like the other subsidies we have shown, it doesn’t go to the struggling family farmer:

Less than one percent (17 cane sugar growers) of the nation’s sugar growers gobble up 58 percent of the program benefits. In fact, one grower alone received $65 million. Contrary to popular rhetoric, these are not small family farmers. Rather, they are wealthy members of the sugar cartel, which pumps millions of dollars into congressional campaigns to protect their precious subsidy.

The high cost of sugar hurts America workers also, some of whom saw their jobs moved to another country in search of cheap sugar:

• Employment in food companies that use substantial amounts of sugar is declining. Imports of food products that contain sugar are growing because it is not competitive to make those products in the U.S.
• Numerous companies have relocated to Canada and Mexico, where sugar prices are much lower.
• Chicago, once the nation’s candy manufacturing capital, has lost thousands of jobs. In 2004, candy maker Fannie May closed its Chicago factory and Brach’s moved its Chicago candy production to Mexico.
• Michigan took a hit in 2002, when Kraft moved its 600-worker LifeSavers factory to Canada in search of low-cost sugar.
• Hershey Foods closed plants in Pennsylvania, Colorado and California and relocated them to Canada as well.

These folks paid the taxes that paid the subsidies that pushed their jobs to another country. And then they have to pay higher food prices for those same subsidies. High food prices as a result of farm programs took $16.2 billion from American taxpayers in 2004. That’s a annual food tax of $146 per house. Ending subsidies would end that tax.

What Happened in New Zealand

In 1984, New Zealand ended all farm subsidies. So what happened? They survived, and thrive today:

A report last year from the country’s main farmers’ group, the Federated Farmers of New Zealand, documents what happened:

• While land prices initially fell after reform, by 1994 they had rebounded and remain high today.
• The predicted farm bankruptcies never materialized — with just 1 percent of farmers going out of business.
• The value of farm output soared 40 percent in constant dollar terms since the mid-1980s and agriculture’s share of national output rose from 14 percent to 17 percent today.
• Since subsidies were removed, productivity in the sector has risen 6 percent annually — compared with just 1 percent before reform.

New Zealand’s farmers have competed successfully in world markets against subsidized producers in much of the rest of the world.

Other reports suggest that the removal of farm subsidies in New Zealand have been a benefit to Kiwi farmers:

• Today New Zealand has around 80,000 farm holdings on 15.5 million hectares (38.3 million acres). The number of farms has held steady since subsidies were removed; land area has fallen slightly as marginal land has been turned over to forestry or allowed to revert to native bush.
• Since subsidy removal the agricultural sector has grown faster than the rest of the economy. Agriculture’s contribution to the New Zealand gross domestic product (GDP) has risen from 14.2% in 1986-87 to 16.6% in 1999-2000. Agriculture accounts for 11.4% of the total workforce.
• Rural population has kept pace with national population since 1986. Employment on farms has fallen somewhat, but these losses have been balanced by increased rural employment in tourism-related businesses.
• The number of forced farm sales directly resulting from the removal of subsidies is estimated at 800, or 1% of the total number of farms
• Agricultural productivity has gone up 5.9% a year on average since 1986. Prior to 1986 agricultural productivity gains were about 1% a year.
• The total number of stock units on New Zealand farms has fallen by 9% since 1987. Sheep numbers are down by 29%, but cattle numbers are up by 35%. Sheep farming was the most heavily subsidized sector within agriculture.
• In 2001 governmental assistance to agriculture was equal to just 1% of the value of agricultural output, compared to an average value for developed countries of 31%. Remaining assistance in New Zealand is primarily in the form of funding for agricultural research.
• Around 90% of New Zealand’s total farm output is exported. These exports account for over 55% of total merchandise exports. Most food consumed in the country is domestically produced.

If the farmers in New Zealand can do it, so can we. We need to return to the times of rugged individualism, where a man was left to his own devices to succeed or fail. The government is there to insure the farmers right to try, not his right to success. His success is up to him. Or at least it used to be. Today, we seem to be caught in the mindset that America’s farmers can’t compete on the world stage without the protection of the federal government. It’s as insulting as it is false. Remove the subsidies and watch the spirit of individualism take over.

THIS IS MOST CERTAINLY TRUE - Gene

Ron, Can you confirm this New Zealand account?

Cross Posted at Say Anything